Europe’s stock markets react to Trump’s midterm defeat

European stock markets rallied on Wednesday after the US midterm elections handed President Donald Trump a clear defeat, with Democrats winning both the House of Representatives and the Senate. The result, nicknamed a “blue tsunami” on trading floors, lifted the Stoxx 600 by 1.8 percent on the day, though most of those gains were given back by Friday, when the index closed 0.4 percent above its Tuesday level. The Euro Stoxx 50 rose 2 percent on Wednesday and ended the week 0.4 percent higher.

European banks were among the biggest winners, gaining 3.2 percent between Tuesday and Friday, with most of the rise coming on Wednesday. According to Jordi Visser, head of AI macro research at 22V Research, this was the sector’s best week since June. Travel and leisure stocks climbed 3.9 percent as oil prices fell; Brent crude dropped more than 9 percent on Wednesday on bets that a weakened president would be less likely to escalate war with Iran. Utilities added 2.5 percent and healthcare 2 percent, while energy stocks fell 4.2 percent on cheaper oil and technology lost 3.6 percent.

Why Europe held up better than Wall Street

Europe’s market resilience reflected its different composition. Sharon Bell, senior European equity strategist at Goldman Sachs, noted that “the equity market is a distorted mirror of the economy.” Financial companies account for more than 30 percent of Stoxx 600 earnings but only 10 percent of euro area economic activity, she said. Goldman Sachs data showed European stocks pulled ahead of US equities this year in local-currency terms after the midterm tech sell-off.

An Intesa Sanpaolo equity strategy team observed that “European indices are less exposed to the semiconductor correction.” Banks were also recovering on solid quarterly results, the team said. The trigger for Thursday’s sell-off was state races, not Congress: Democrats won governors’ races in Texas, Ohio and Georgia, where Republican governors had courted the data-centre boom with tax breaks and fast-track permits. Texas, home to some of the largest US AI data-centre projects, was the hardest hit. Voters in parts of Ohio, Illinois, Maine and Florida approved local measures to ban or restrict new data centres.

Winners and losers from the data-centre pause

Gian Marco Salcioli, head of global markets strategy at Intesa Sanpaolo, said that “the fear of Democrat-inspired opposition to data centres has gained greater political weight, and the risk concerns not only new regulations but above all permits, energy consumption and local resistance.” Slower approvals would mean fewer data centres, fewer chips, fewer chipmaking machines and less power equipment. Bond yields fell: Germany’s 10-year Bund yield dropped from 3.33 percent on Tuesday to 3.25 percent on Friday, touching its lowest since late August, while France’s 10-year yield fell from 4.95 percent to 4.77 percent and the US 10-year Treasury yield from 4.97 percent to 4.86 percent.

Peter Williams, economist at 22V Research, described “greater-than-expected constraints on the war, tariffs, and the artificial intelligence (AI) boom as modestly disinflationary shifts over the medium term.” US hyperscalers are among the world’s largest borrowers and compete with governments for the same investors. Meta sold $10 billion (€9 billion) in bonds last week, its first euro-denominated deal, drawing more than $59 billion (€53 billion) in orders—a record for a corporate issuer in Europe. Pasquale Lodato, credit strategist at Intesa Sanpaolo, noted that “the market continues to finance the investment programmes of the big hyperscalers, but demands increasingly higher compensation.” A data-centre pause would mean less AI spending, less Big Tech debt and less competition for government deficits.

Among individual stocks, a French building materials group rode the rotation as construction stocks benefited from lower borrowing costs, making them among Europe’s best performers on Wednesday. A Spanish lender led the European bank rally, with the sector up more than 4 percent on Wednesday alone, largely recovering from September-October weakness. Prosus, a Dutch tech investor, gained as investors swapped US AI exposure for Chinese tech; its biggest asset is a large stake in Tencent, and both Tencent and Alibaba rose more than 6 percent in Hong Kong on Thursday. Bayer, the German drugs and crop science company, climbed 4.6 percent on Wednesday after Bank of America analysts said most legal battles were behind it and pointed to a path to stronger cash generation and lower debt. A Dutch payments group was among the biggest beneficiaries of money leaving AI, despite a sharp fall after late-October results on a cut profit margin target to fund more investment; Citi analysts said on Friday the market was too focused on the short-term margin hit and underestimated long-term growth.

On the losing side, ASML—Europe’s most valuable company and the only maker of the most advanced chipmaking machines—fell 6.5 percent on Thursday, as fewer data centres would mean fewer chip factories and fewer orders. Nokia, the Finnish network equipment maker repositioning around AI networking, dropped 7.5 percent on Thursday on questions over data-centre equipment demand. Siemens Energy, the German gas turbines and grid equipment group, fell 8 percent on Wednesday; much of its recent growth came from turbines powering US data centres, with Texas a key market. Infineon, Europe’s largest chipmaker and a major supplier of power chips for data centres, fell 8.5 percent on Thursday alone ahead of its results on Tuesday. Rheinmetall, Germany’s largest defence group, had its worst week of the year; investors first questioned whether a Democratic Congress would back the Trump administration’s military spending scale, and on Thursday the company cut its 2026 sales forecast for the second time in three months, no longer expecting the Boxer armoured vehicle contract this year. Its shares fell 16 percent on Thursday.